The continued strong demand for business loans, combined with a tightening in the availability of funds has caused commercial banks in most parts of the country to begin trimming their lists of customers entitled to prime-rate loans.
The prime rate is the interest rate that banks charge their best customers with the highest credit ratings. The present rate is 5.5 percent.
The executive in charge of the national department at one of New York's leading banks noted yesterday, for example, that "the change has come particularly in the short and medium term range."
In these categories, the bank officers said, rates are generally 5.75% when they had been 5.5% formerly.
Short term loans are for less than one year while medium term loans are from one to five years.
A top executive at another large New York bank added that "we also see a trend toward shorter maturities on term loans." The longest maturity his bank would give the, he said, was seven or eight years at any rate.
"Personally I feel that we shouldn't be giving prime-rate loans on any maturities of more than two years," he asserted.
The president of a large Texas bank stated flatly that "we are negotiating with each individual customer," implying in that no customer is guaranteed the prime rate.
A senior loan officer at a major California bank said, "We've been shying away from even talking about the prime rate and have been fixing rates with each loan rather than gearing our rates to the prime."
One area, however, apparently not experiencing the pinch was Chicago, where the executive of a large bank reported that "I don't think we're in a position where we have to reduce the list of prime customers."
The interest rate of prime-rate customers varies inversely with:
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